The financial marketplace consists of numerous products that have evolved out of the most basic designations of equity and debt. Product specialization has resulted in linguistic and semantic differences, similar to those that can be found in different national languages in the world's countries. The transactional conventions and methodologies for scoring and rating the products that are associated with these differences can result in real price and term discontinuities, just as they appear in society as different approaches with different meanings. As is well known to those in the trade, it is possible through one kind of financial engineering or another to change high risk assets into low risk ones through various kinds of aggregation, diversification, hedging and division of risk. As a result, a single C risk can be re-configured into a product that appears to have AAA-risk characteristics. Of course, the individual asset retains the same characteristic that it always had; it is the pooled, re-configured and financially re-engineered aggregation of products that is considered to have a different characteristic than a specific component of the pooled product. The difference is most easily seen as the analysis becomes increasingly granular. The disease that might infect one class or sub-class of assets may not necessarily spread to the whole—and then again it might. The financial world has now seen how this result can play out to disrupt the entire marketplace in the subprime mortgage crisis of 2007-2008. This is a clear example of a financial “perfect storm”.
Therefore, it would be beneficial to have a superior method and apparatus for component analysis of pooled securities.